I am the Founder of Community of Liberty, a chapter based organization committed to pursuing the art of living in liberty, a member of the Publication Committee of the Claremont Review of Books, an Advisor to TheGold StandardNow.org, and a juror for the Bastiat Prize for Journalism. I have just published with my co-author Ralph Benko the booklet, "The 21st Century Gold Standard: For Prosperity, Security and Liberty," now available as a free download at AGoldenAge.com. I bring to my columns an extensive background in the investment management business, including my experience as an equity portfolio manager, strategist, president of my former firm’s retail sales and marketing subsidiary and member of the parent firm’s management committee. As such, I have been a student and observer of the political/economy and its affects on markets, businesses, and my own business for more than 30 years.

Today's Lousy Economy May Be The Best Obama Can Do

The last economic data before the election show the U.S. economy is in lousy shape, but performing above depressed expectations. The celebration of the nation’s sub-par economic performance by President Barack Obama and his supporters reveals an embrace of the total failure of their economic policies. Lousy but better than expected results are apparently the best they expect to do.

There is little to indicate the uptick in third quarter growth to 2% from the barely perceptible 1.3% growth in the second quarter is anything more than a temporary uptick. Fully one-third of the increase was generated by higher federal spending, mostly on defense, which is unlikely to be repeated in the current or future quarters. Personal consumption expenditures advanced at a 1.4% annual rate, but gross private sector investment increased by only .07%. In other words, absent the one-time increase in federal outlays, economic growth would have been down near the 1.3% rate posted in the second quarter.

Slow economic growth means slow growth in jobs and continued high unemployment rates. Total nonfarm payrolls increased by a better than expected 171,000 in September.

But economist and pundit positive reactions reflected reduced expectations going into the report rather than strong economic performance. In fact, the unemployment rate ticked up to 7.9% from 7.8% as more workers joined the labor force than could be put to work. More than 12 million Americans are officially in jobless lines, and about 40% of them have been without work for more than six months. When the number of discouraged workers and those who are “marginally attached to the work force” are included, the total unemployment rate is a staggering 14.6%. Moreover, the least advantaged continue to suffer the most with the following unemployment rates: blacks 14.3%, Hispanics 10%, teenagers, 23.7%, and black teens 40.5%.

The claim that continued sub par growth and brutally high unemployment rates are due to the severity of the financial crisis and the depth of the recession is a lousy excuse contradicted by the historical facts. Time and time again, the more severe the recession, the stronger the recovery. President Ronald Reagan inherited an economy every bit as troubled as did President Obama. It is hard to believe now, but when Reagan was sworn in, the prime rate charged by banks was above 15%, the interest rate on a 30-year fixed mortgage – if you could get one – was above 12% and the unemployment rate stood at 7.5%.

In addition, the economy was hit in short order by two recessions. The first, which struck in the first half of 1980, cut real GDP by 2.2 percentage points in just six months. The second began in July 1981, 6 months after Reagan took office, and didn’t end until November of the following year. During those 16 months, the economy contracted 2.7%, and the unemployment rate peaked at 10.8%.

The combination of high inflation and high unemployment inherited by Reagan befuddled the Keynesian economists of the time. In their economic models, high inflation is caused by too much demand, and high unemployment is caused by too little. But of course, both can’t be true. Their solution then as now was to raise tax rates to balance the budget, and to further ease money in an effort to spur the economy through lower interest rates. To their horror, the Reagan Administration did just the opposite. A bipartisan majority in Congress enacted, and the President signed a permanent, 25% across-the-board reduction in personal income tax rates. Moreover, President Reagan supported Fed Chairman Paul Volcker’s successful efforts to slow inflation and stabilize the value of the dollar, which cut the rate of consumer price inflation in 1985 to less than 4%.

The recession ended in the fourth quarter of 2002. The tax rate cuts kicked in on January 1, 2003. During the next 3¼ years, real GDP grew at an average annual rate of 3.3% and, sized for today’s economy, non-farm payrolls increased by more than 10 million. The unemployment rate fell to 7.2%.

The Keynesians were wrong then just as they are today. During the 2008-09 recession, the economy contracted 5.7%. Following the Keynesian playbook, the Fed has kept interest rates artificially low and is now on its third round of quantitative easing. On the fiscal side, the Obama Administration has pursued a massive increase in federal spending, including $787 billion in stimulus, hundreds of billions more for the bailout of Fannie Mae and Freddie Mac, targeted and temporary tax rebates and reductions in the employee’s payroll tax, extended unemployment benefits, cash for clunkers, tax credits for first time home buyers and just about every other gimmick in the grab bag of demand side ideas. Yet, during the 3 1/4 years since the recession ended in June 2009, the Obama recovery has been the weakest in U.S. history. Economic growth has averaged only 2.2% a year, and non-farm payrolls have expanded by just 3.3 million – 7 million fewer than during the Reagan recovery empowered by lower tax rates and monetary restraint.

No doubt, slow growth is better than economic contraction, and beating expectations is better than failing to deliver. But an economic performance as lousy as that produced by Obamanomics deserves our jeers, not cheers.

Of course, things could be worse. And, if President Obama is re-elected, they most likely will be. Think of it: He would inherit the Obama economy beset by slow growth, stubbornly high unemployment, record budget deficits, and a go for broke monetary policy that risks dollar depreciation and a break-out in inflation.

His solution – to spend more money on Big Bird, uneconomic “green energy” and every other Democratic constituency and impose a permanent increase in personal income tax rates on successful entrepreneurs and job creators – would destroy private sector economic activity and job creation. The most likely result: a recession that would lead to yet higher federal deficits, higher unemployment, a further squeeze on the middle-class and a contraction in the tax base that would threaten to bankrupt public employee pension plans from California to New York.

Bottom line, the current lousy economy may, in fact, be the best Obamanomics can do.

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First, I realized that I would have better said, “Where there is a problem with Obama, it’s where he’s the same…”

I would have to ask why there is lackluster demand? While 100 different factors can be correctly cited, concern over government fiscal policy is very much inhibiting economic growth and within that concern, front and center, is the deficit, justifiably or not. I will also argue that minus the debt, Washington and the Fed would have more wiggle room and the deficit would be much smaller. I may not argue that authoratatively, but I still believe it.

Spending for Defense (to crush a mortal enemy), for R & D, to foment world peace, resulting in the generation of a small (by todays standards) deficit, is a far different bird than spending to support Cronyism and Statist control. One is productive, the other is DEstructive. One is investing in food on the table, the other is “investing” in kewpie dolls.

Not “may” be the best Obama and his liberal/progressives can do, but “is” the best they can do!

If Obama bin Lenin wins re-election, even by the smallest of margins, he will see it as vindication of his failed policies and a mandate for more of the same, as we go ‘Forward’ to a socialist People’s Republik!

And the economy, with its near-Depression unemployment and under-employment, will get worse. The billions of dollars currently sitting on the sidelines will move elsewhere, while ObamaCare’s 21 new taxes and his idiot idea of “fairness” drags the country into a new Depression. The 5%ers will send or take their money overseas, making the country immeasurably poorer. And perhaps even worse, millions of entrepreneurial types will look for opportunities overseas, thus gifting the People’s Republik of Amerika with a brain drain.

Today’s election is the last chance to save the American Dream and the Constitution.

A little blurb from the Bureau of Economic Analysis: “The revised estimates show that for the period of contraction from 2007:Q4 to 2009:Q2, real GDP decreased at an average annual rate of 3.5 percent; in the previously published estimates, it had decreased at a rate of 2.8 percent. The cumulative decrease over the six quarters of contraction is now estimated as 5.1 percent, compared with 4.1 percent in the previously published estimates; both the revised and previously published estimates of GDP show that the recession was the deepest contraction since the beginning of BEA’s quarterly real GDP estimates in 1947.”

This was a worse recession than the Reagan recession. It was caused by a financial crisis (see Reinhart and Rogoff on why that is worse) as opposed to the contractionary money policy that tripped the Reagan recession. Kadlec is comparing apples to oranges here.

Ov er the last year, I have heard all of the so called political economists time nad time again talk about Obama’s failed policies, and never once once have they indicated what would would be a better policy. Literally everything he has tried to do was ONCE a REPUBLICAN policy that the REPUBLICAN house ONCE supported.SO in areal sense. the President has used policies that DID create 5mil JOBS, stopped the bleeding, and although slow has the economy moving. NOW I wonder what would you have done differently, what would would you have done if the congress refused to work with you? What magic potion would have you have come up with to energize the economy.Obama created the windfalls that all your BIGSHOT buddies have in the bank and would’nt spend so he would be defeated.Well the community organizer is on the verge building on what HE found to work without your punditry and help. He will build on the economy the Republicans refused to help him with.

Build on the economy! The Dems had control of both houses and the WH back in 08. How did that turn out? Where was the roaring economy? The Dems then lost control of the Congress? What policy changes did they enact to create a soaring economy that were different from their first 2 years? What policies will be different for the next 4 years?

All Obama knows is to fund the welfare state, for lousy businessman and companies, for lousy public unions, and somewhat for the working class. That’s his entire plan.

Reagan was NOT all that: He did not cut taxes for most people–he cut taxes for the rich & raised them on the poor & middle class. When he took office the top rate was 50% & it was 28% when he left. Payroll tax & SS went up significantly in 83 & a lot of deductions for the middle class were dropped. He did expand the earned income tax credit which helped some. There was no economic boom when Reagan was prez. In 1980 the unemployment rate was 7.2%, it went as high as 11% in 1982 & for 82 & 83 was 9.7% & 9.6% respectively. In his 1984 re election it was 7.4%. It didnt go less than 7% until AFTER he raised taxe on most people. It was 5.2% in Jan. 1989–not bad but not great either. Reagan’s growth rate didnt come close to those under Clinton OR OBAMA. Clinton’s GDP of 4.1% in 1994 was higher than Reagan’s entire presidency. Job creation by Reagan ranked 3rd WORST among all post war presidents & just ahead of the 2 Bushes. Reagan did not reduce the size of govt–he slashed programs for the poor & working class all right but he had enormous increase in defense slending. When Reagan left office in 1989, the govt was 25% BIGGER than 1981 when he took office. There’s more but too long for here.